Corporate Bonds
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Denmark
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Danish energy company issues 2.25% bond with WHAT maturity date?
(17 Nov 2017) Those wacky Europeans. Danish energy company Orsted needed to raise some cash, so they decided to issue a hybrid bond to investors. Wishing to take advantage of the low interest rates on the continent, they set a fixed coupon rate of 2.25% on the debt instrument. That's better than zero-point-something money market rates, so why not pick some up? Well, there's one catch. The bond has a maturity date of 24 November 3017. Yes, you read that right—it is a 1,000-year bond. The company reserves the right, however, to yank the bond and pay investors back at par anytime after 2024. Who in their right mind would take this sucker bond? Well, the company raised over 500 million euros overnight when the bond was issued. We said right mind. The icing on the cake: the company will use the proceeds to help it go "green" with respect to its energy business. That's fitting. |
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AAPL
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The cash-richest company in the world to issue more debt
(05 Sep 2017) Despite the fact that Apple (AAPL $103-$162-$165) has a cool $250 billion sitting in “the bank” at various locations around the world, the iPhone maker announced its plans to raise another $7 billion in the bond market. AAPL will issue 2-, 5-, 10-, and 30-year bonds to finance its shareholder dividends and stock buybacks. The company issued $7 billion in debt instruments this past May. Why on earth has Apple taken on more than $98 billion in debt when it has so much free cash? The primary reason (just like we mentioned below with respect to Amazon) is the onerous tax rates the company would pay under the current US tax laws if any of that cash hits US shores. While we don’t know the rates of these new issues yet, there is one question which remains unanswered: who would be dumb enough to buy a 30-year bond right now, no matter the creditworthiness of the issuer? |
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AMZN
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Amazon to issue debt offering to fund Whole Foods acquisition
(15 Aug 2017) According to a securities filing, Amazon Inc. (AMZN $710-$983-$1,083) will issue debt to raise up to $16 billion in funds for the company’s acquisition of Whole Foods Markets, Inc. Moody’s has assigned a credit rating of Baa1 (one notch below the lowest “A” level) on the new offering, and has raised the company’s outlook to positive. There are no details yet on the interest rates or other terms for the new senior, unsecured bonds. Why would a company which has produced $9.7 billion in free cash flow over the past year issue debt to fund the purchase? For one, the cost of borrowing capital is so low right now thanks to the Fed. For another, until the US repatriation tax rate comes into line with the rest of the developed world, it remains too expensive for Amazon to bring the cash they hold overseas back home. We will watch for the terms of the new debt instruments—they may make a nice addition to our fixed income portfolio. |
(30 May 2017) First Republic to offer $500 million worth of senior notes. We have been carefully monitoring the credit market lately, as the Fed's looming interest rate hikes are akin to rain clouds forming over a dry lake bed. Rates have been so low for so long that many investors have become dangerously overweighted in the equity market—or REIT market—in a search for yield. Any major downturn could spell disaster for their portfolios. We can gauge where shorter-term rates are actually at by reviewing new corporate issues, such First Republic Bank's (FRC $64-$93-$97) offering of $500 million worth of five-year senior notes. The 2022 notes offer investors 2.500% per annum, until their 06 Jun 2022 maturity. These notes will probably carry an A- credit rating. At the two ends of the five-year spectrum? We have some 2.200% A paper, or some 4.750% Verizon BBB+ notes.
(22 May 2017) We just picked up a short-term Ford bond for clients of PWM. After a decade of ultra-low rates, many investors can find their fixed income portfolio up in the attic collecting dust—if it still exists at all. Now is the time, as rates are beginning their slow ascent, to begin rebuilding your fixed income ladder, rung by rung, beginning at the short-maturity end. That being said, we just picked up a three-year Ford Motor Company bond with a good comparative yield. Contact your investment professional (hopefully Penn Wealth Management, LLC) and see what makes sense for your personal situation.